The correct amount of down payment on a home is NONE! I have purchased many homes during my lifetime (I’m 71) and I have never paid a dime in cash for a down payment. It’s not necessary, it’s a foolish expression of interest in the property, and as an investment, it ranks absolutely last for return.
So what do you use when you want to buy a home and you don’t have, or don’t want to invest, in a down payment. Lets run through a list of things that make more sense than handing over your life’s savings on a piece of property you don’t know much about!
By the way, I’m not an advocate of “No down payment” like the guy on TV, and how to get rich in real estate, etc. etc. What follows here are just good ideas to help the home purchaser.
First of all, I have yet to see a home that didn’t need something – ie: the roof needs touching up on the south side, the concrete is cracked in the driveway, the wood about the main entrance needs replacing along with the door, etc. etc. These are your down payments! Simply find out what a roofer, concrete person, or whoever is going to do the work is going to charge. Get that amount as a reduction from the sale price. Submit the lower sale price as a 90% loan to value and you’ll get your mortgage loan! That has worked on 6 different occasions for me! Sounds too complicated? Try this next concept!
Find the home you want. In today’s market, the home has probably been on the market for a lot longer than the home owner would like. By now the homeowner is willing to seriously negotiate the price. Offer the homeowner 90% (or 80%) of the appraised value of the home. The appraised value protects you so you can use the same appraisers report to get a mortgage loan. Any number between 80% and 100% will get you a mortgage with your down payment still in your pocket. Don’t listen to realty people and bankers who will advise you otherwise – they want your down payment!
There is a huge and growing foreclosure market almost everywhere in the country today. Its a tough situation for anybody to be in when they toss you out of your home. However, for every ill wind blowing there is a sail boat to rescue you from making a down payment. Listen to the following:
Foreclosures are so numerous today the professionals simply can’t keep up with the traffic and its a good time to try and pick up a home for about 40-60% of its real value! If you had envisioned yourself with a mortgage loan payment for a $200,000 home($1500-1800 per month)now think in terms of a $100,000 mortgage with (half the other figures). The monthly savings is worth a ton! The thing about foreclosures is that there is no down payment! There is only one payment – the full bid price and that has to occur almost simultaneously with the winning bid. However, do not despair, it is possible to get through all of this and wind up with a perfectly good, (or repairable) home – its done every day of the week, all over America.
Go to an independent mortgage loan broker and tell them you are going to buy a foreclosure home – show them 4-5 examples (you can get these from local realtors, or banks who own them) of what you want to purchase. They will write up a deal that either puts up a letter of credit or makes it available for purchase of a foreclosure home upon winning the bidding. Its not that complicated if you have good credit – if you don’t you should probably go elsewhere for a home. Get an attorney to advise you – this is money well spent when you are considering a foreclosure.
Put your down payment in your pocket, have the spouse sew it shut and keep it that way for the duration of the buying of a home. I have yet to move into a home and not have to come up with $2-3,000 for drapes, electrical, immediate repairs on something, or a 100 other things! If you have dropped every dime you have into the down payments, how you going to cover these over new and unexpected bills?
Return on investment of a down payment cannot be found in todays financial world. If the home costs $200,000 and you put $20,000 (10% down) you will have a mortgage loan for $180,000 plus fees. The difference in the monthly payment for a mortgage on $200,000, $190,000 or $180,000 is not worth the investment. Over the life of the mortgage, whether it is 15 years or 40 years, you could have gotten a better return almost anywhere else on the money that you would have invested in a down payment!
Don’t do it! Keep that money in your pocket!